The Associated Press last week reported on an interesting development in the competition between brand-name drugs and generics. Drug manufacturers whose drugs are coming off of patent are offering patients coupons to reduce the copayments that the patient pays for the drugs, so that the patient's out-of-pocket cost will be around the same as what the patient would pay for a generic. Because brand-name drugs carry such a high profit margin, delaying patients' switch to a generic by even a few days can mean millions of dollars in additional profits for the drug manufacturer. Insurers do not like this practice, because they do not get the benefit of the coupons, and continue to pay their full share of the cost of the brand-name drug, which is much higher than the generic. The coupons incentivize patients to resist the insurer's desire to switch the patient to the generic drug, resulting in a lot of wasteful spending by the insurers. Insurers are fighting back by requiring patients who want the brand-name drugs to pay an extra fee that makes the use of the coupons unattractive.

Profits and Kickbacks

Drug manufacturers are entitled to make a reasonable return on their investments in developing new drugs (that is the purpose of the patent monopoly, after all). But this practice definitely raises prescription drug spending unnecessarily, and is particularly trouplesome when this strategy to maintain profits takes the place of developing new drugs to replace the profits that are lost when a drug goes off-patent. The coupons are also coupled in many cases with "lifestyle" programs, such as Pfizer's "Lipitor for You" program, which includes coaching, health advice and recipes. It is illegal to give Medicare and Medicaid patients discounts to entice them to buy a particular product or use a particular service or health-care provider, under the Anti-Kickback Statute. But apparently waste in the name of maintaining private profits beyond the time the law says you are entitled to them is perfectly fine. Why?